• Wednesday, February 21, 2024
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BusinessDay

Corporate governance and not for profit organisations

Corporate-governance

Fundamentally, governance is governance. There is no substantive difference in good governance between public companies and not-for-profit organizations; in fact, many NPOs have governance practices that equal the best practices of many public companies” – Deloitte Center for Corporate Governance.

According to the exposure draft of the Financial Reporting Council (FRC) National Code of Corporate Governance for Non-Profit Organizations, 2015 (“the draft Code”), good governance in Not for Profit Organisations (NFPOs) is a transparent decision making process in which the leadership of a Not for Profit Organisation, in an effective and accountable way directs resources and exercises power on the basis of shared values. Corporate Governance refers to the systems and processes put in place to control and govern an organisation.

In Nigeria, NFPOs are incorporated under Part C of the Companies and Allied Matters Act, 2004 (CAMA) and are governed by a Board of Trustees, Governing Board or a Board of Directors. CAMA provides in Section 674 that the objective of an NFPO must be for the promotion of any lawful educational, religious, cultural, scientific, charitable, sporting, literary and social development purpose.

The draft Code recognises the need for the extension of good corporate governance practices to NFPOs as they are of great economic importance and are considered to be the third sector of the economy. NFPOs play a significant role in society and in many instances directly impact the lives of their members or beneficiaries. The practice of good governance in this sector will ensure better organisational performance, transparency, accountability, responsibility, fairness and disclosure to stakeholders and improve confidence in the activities of NFPOs.

Given that NPFOs are dependent on donations and goodwill from local and international sponsors and donors, the adoption of corporate governance principles is essential. The Trustees/Directors have a responsibility to effectively and efficiently oversee the affairs of their organisations and ensure the attainment of set objectives in a manner that enhances sustainability and public trust. As Trustees, they owe a fiduciary duty to the organisation and are expected to exercise care, loyalty, skill, diligence, obedience and ensure fulfilment of mission. NFPOs exist to serve public interest and not the personal interests of their founders.

The draft FRC Code is intended to apply to all NFPOs in Nigeria regardless of the description or nomenclature adopted and compliance will be mandatory. The Code seeks to regulate the activities of Charitable, Educational, Professional, Scientific, Religious, Literary/Artistic, Political/Administrative grouping, Social and Recreational Clubs and Associations, Trade Unions amongst others. This implies that churches, mosques as well as other Not for Profit organisations, by whatever name called will be regulated by the Code.

Recognising that NFPOs are diverse and that it is “procedurally inappropriate for a Code to be dogmatically prescriptive in defining characteristics for general Not-For-Profit sector governance” the Code prescribes the “adoption of the principles of good governance across the sector, while allowing the use of very flexible nomenclatures by various organisations. These will provide very useful frameworks and critical platforms for the establishment of good but mandatory governance practices, on a case-by-case basis, having regard for each NFPO’s peculiar and particular circumstances”.

To improve the standard of corporate governance practices by NFPOs, the draft FRC Code requires that Directors should undertake Director Induction and Development on a regular basis, a periodic evaluation of the performance of the Board (Trustees), the Committees and the individual Directors (Trustees). It is expected that the Board will make effective use of Board Committees, strengthen Internal Controls, undertake periodic review of the Constitution (Bye-Laws), and ensure that there are appropriate policies on investment and spending.  As it is intended to be a mandatory Code, violation of Code provisions will attract both corporate and personal sanctions.

The primary purpose of NFPOs is to serve the public rather that maximize shareholder wealth. Regardless of whether an organization is for profit or not for profit, good corporate governance guarantees sustainability and increases probity and accountability and ensures that appropriate structures and processes are in place to guard against potential failures, fraud, and misconduct. NPFOs must be monitored to ensure the funds they receive are spent on the intended philanthropic purposes. Adopting the corporate governance principles of transparency, accountability, fairness and integrity will engender a well-governed NFPO and attract higher levels of funding, sponsorship and donations.  Undoubtedly, the NFPOs and the respective causes for which they are set up will be the ultimate beneficiaries as civil society will welcome a system built upon greater transparency and good governance.

Adebisi Adeyemi